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Mr. Llwyd: Yes, I am trying to work myself out of a job. Like the right hon. Gentleman, I could fall back on another.
Mr. Davies: Perhaps. I am trying to make a serious point. If the Welsh nationalist party wants to leave this place, so that there are no seats here for Meirionnydd Nant Conwy, Ceredigion or Caernarfon, where will the £1.2 billion for Wales come from? It will not come from the crazy policy of variation of taxes that the hon. Member for Brecon and Radnor (Mr. Livsey) proposed. If Wales is one of the poorest areas in Britain, how will we get more money by taxing Wales? That policy is foolhardy. Not even the Welsh nationalist party in its current state would argue that.
Mr. Paterson: Does the right hon. Gentleman know that for every pound we receive from the European Union, the British taxpayer contributes £2.12, according to the Government pink book? Would not it be preferable if all the schemes were repatriated and determined by national Governments so that twice the money could go towards the projects and decisions could be made swiftly?
Mr. Davies: If I pursued that, I would be called a Euro-sceptic or a little Englander. I shall not go down that road. The Treasury should provide match funding and I am glad that even the Welsh nationalists agree that a
condition should be attached to that, and that my right hon. Friend the Secretary of State and the House should play a part in vetting projects that use Treasury money.
Mr. Öpik: If the right hon. Gentleman was given the choice between a penny off income tax or £2 billion towards health, what would he vote for?
Mr. Davies: I shall not be drawn down that path.
Mr. Davies: I am trying to give a short answer.
I agree that generally one should not cut taxes any further--we need the public expenditure. One can argue for or against these propositions, but as I understand it, when the married couple's tax allowance is taken away, as it will be from 5 April, and as mortgage interest relief is taken away, many people will pay more tax unless there is some reduction in what used to be called the standard or basic rate of income tax. We shall hear about that in the Budget, but I suspect that there will be a cut in the basic rate to compensate for one or the other, although I do not know whether that will work out perfectly.
I return to the 26 March Budget. I hope that my right hon. Friend the Chancellor announces that the Treasury will be the provider of last resort or guarantor for the £1.2 billion that may be required. It is perfectly possible to do so and I do not think that we need more, although the nationalists apparently do. I know that my right hon. Friend is a very tidy Scotsman and he wants to make sure that everything works perfectly. He wants to act--if he is to do so--in the comprehensive spending review, as it is now called. However, there was a time when public expenditure and the Budget were one and the same.
Mr. Simon Thomas (Ceredigion):
As a new, inclusive politician from Wales, I begin by congratulating the Minister on the centenary of the Labour party. I do so as a son of Aberdare--I see the hon. Member for Cynon Valley (Ann Clwyd) in her place--who is proud to have been brought up there. The first Labour Member of Parliament was Keir Hardie, who represented Merthyr Tydfil. I am proud to call myself a Welsh socialist.
Mr. Thomas:
A Welsh socialist, I said. I hope that the Minister will join Plaid Cymru in celebrating our 75th anniversary later this year.
As a new Member, I have been fortunate: shortly after making my maiden speech I have been given this opportunity to round out some of my general descriptions of the constituency by discussing in more detail its economy and rural economy and the effect of Government policy in the rural economy. As the representative of a constituency that is part of the objective 1 area, I make a
small plea for essential changes to be made to the Government's approach to the economy in general. That status is a sign that our gross domestic product has fallen below 75 per cent. of the European average.
I acknowledge the Government's hard work in gaining objective 1 status for the area that I represent, but as many Members have said, we need it because the current state of our economy is nothing to be proud of. It is a sad testament to many years of under-investment in rural and urban Wales, although I acknowledge that the present Government are not responsible for a lot of that. Nevertheless, let us be clear that their hard work on objective 1 will come to nothing, as the right hon. Member for Llanelli (Mr. Davies) made clear, if the questions on match funding and additionality are not answered urgently. They are addressed in the Select Committee report and have been discussed across the Chamber today.
I want to concentrate on the wider economic trends that the Government are following. I hope that the Minister will think seriously about how the Welsh economy is performing and not paper over the problems with general comments about the United Kingdom economy. As my hon. Friend the Member for Meirionnydd Nant Conwy (Mr. Llwyd) made clear, parts of the UK economy are doing extremely well, but we have a problem in the rural economy and a general problem in the Welsh economy.
Let us remind ourselves that the area ranks as one of the most underdeveloped, underpaid and underskilled in Europe. Nothing is more crucial to my constituents and, I know, to many constituents of Labour Members, than for the Government to address the problems of regeneration--urban and rural--and to invest in a rural infrastructure that can deliver sustainable development. That is the true test: not whether we have objective 1 status, but what we do with the opportunity.
Let us look at the economic context. Unemployment is falling in my constituency and in many Members' constituencies, but the bald statistics mask a real crisis. The unemployment statistics are skewed by the amount of young people who are leaving my area and rural areas in general, and by the inward migration of older, retired people. The economy is low wage, with many tourism and agricultural jobs, which are seasonal and depend highly on general economic circumstances. People might have a job this week, but not the next. It is like that in many rural areas that I represent.
In particular, the strong pound is hitting both tourism and agriculture. The milk industry in Ceredigion--we need to put it on the record--is on its knees under the strength of the pound. The difference between sterling's current rate and that which would apply under convergence is worth 2p on a litre of milk. On an average Welsh quota for an average Welsh dairy farmer, that is about £15,000 a year. It is the difference between profit and loss, happiness and misery.
An additional factor in the make-up of Ceredigion is the high rate of self-employment. That again reflects the tourism and agriculture sectors, where small businesses dominate. It bodes well for a local "menter", or entrepreneurial approach to objective 1, but it does not bode well for attracting private sector match funding to rural areas as they do not have the large firms. There are no headquarters or large corporations there. On the split and share of objective 1 funding, it should not cluster
around the Sony corporations and M4 corridor, where it would be easy to get match funding. It has to be spread throughout the area, particularly rural Wales.
All that may suggest that Wales is the poor man of the UK and goes cap in hand to the Treasury for resources. I do not accept that. There are many hidden subsidies within the tax system. It is not a simple case of saying that the tax take from Wales is X, the amount of Government spending in total on Wales is Y, so Wales is poor and gets money from other areas of the UK. We have to have a much more sophisticated analysis, including in particular things such as the defence industry in south-east England and the hidden subsidies for investment and infrastructure building in the UK.
Mr. Denzil Davies:
We are back on the defence industry. Dr. Phil Williams has been writing article after article about the lack of a defence industry in Wales. Does the hon. Gentleman not realise that that has nothing to do with it? The amount of public expenditure that comes in is £15 billion. The amount of taxation raised is £10 billion. On the Maastricht criteria, there is a gap of 15 per cent. of GDP--higher than in any other country in Europe, except Slovakia.
Mr. Thomas:
I make three comments on that. First, where are the multinational headquarters of those companies? Where do they pay tax?
Mr. Thomas:
I do not think so. Secondly, investment in infrastructure follows that sort of industry, which we do not have in Wales and rural Wales. Thirdly--I hope that the right hon. Gentleman is another Welsh socialist--there is nothing wrong with redistribution of income anyway, if that is the point that he wants.
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